Revisiting and Expanding the Laffer Curve

The Laffer curve is about how much imposition or other types of trouble people are willing to tolerate from their fellows. Arthur Laffer, a professor at the University of Southern California, is supposed to have drawn a bell shaped graph on a napkin once to show that up to the peak point of it people are likely to put up with the burden of taxation. The peak isn't the same for everyone, but everyone does have such a peak.

In particular, then, the Laffer Curve concerns taxation, a form of extortion, which government uses to obtain funds to operate its undertakings. Reminiscent of how organized crime groups, such as the Mafia, operate, the government threatens heavy fines and jail so those being threatened hand over funds. Since, however, many governments, unlike the Mafia, can be voted out of office, the severity of the extortion has to be gauged with the possibility of eventual electoral resistance in mind. This is no easy task and can often go awry. Yet in most countries tax revolts are relatively rare since few people wish to risk losing their forms of life just so as to retaliate against the powerful forces of the state. This, again, is similar to Mafia type extortions in which the victim is given some benefits in order to be placated -- e.g., protection from vandalism (the bulk of it initiated by the gangsters themselves).

Now the Laffer Curve is extendable into much more than the sphere of taxation-extortion. Any sort of government intrusion is subject to its insight. Censorship comes to mind -- a certain amount of it will not be widely resisted. Government regulation, all of it a violation of the prohibition of prior restraint -- is also subject to it since it is taken to be more trouble at times to resist than to comply with it. Indeed, statism as such is subject to the Laffer Curve analysis -- in most societies it is not significantly enough resisted for it to subside, let alone disappear.

People subjected to statist measures of any sort simply will not mount effective resistance because to do so may involve greater losses than gains and they are, after all, often able to circumvent it reasonably successfully by using their own intelligence or hiring expert help in the form of specialist in various branches of intrusive law.

Finally, the Laffer Curve is useful, also, to explain why there is not enough political resistance to statism and why only a small percentage of the population bothers to mount any, especially in advanced, developed countries where people live quite well, and where mounting resistance is quite costly, relatively speaking -- that is, the possibility of success is small while the cost of the revolt is considerable. In undeveloped countries the situation is different, which helps explain why so often it is in such countries that we see rebellion and revolt against prevailing authorities and why there is frequent regime change in many of them. Put bluntly, the bulk of the population has little to lose from rising up against the state. That is not so in most developed countries.

The small percentage of citizens who will insist on making an issue out of nearly any measure of statism in developed countries will not manage to achieve regime change, of course, but it will keep the idea of it alive. Yet this itself can contribute to the ineffectuality of such marginal efforts, since the rest of the population may perceive the small resistance as sufficient and proceed without giving it any aid or even much attention.

Is there a remedy or is this normal? In a sense it is normal -- most people will put up with some trouble from others. They will accept a certain amount of intrusive noise from neighbors, being bumped on the sidewalk as they hurry to some destination, even some fender bender type auto accidents, let alone insults and humiliation. Minor thefts or assaults are rarely reported to the authorities.

However, what is not normal is becoming habituated to such tolerance for invasiveness from others. Most of us fear the consequences of such habituation -- just as we fear being habituated to anything that harms us in the long run.

If it becomes evident enough, via education or the example from other regions of the world, that statism even in small increments has bad overall consequences, that things could turn out measurably better without it, the peak of the Laffer Curve may become more easily reached for the bulk of the people and the level of tolerance of statism could diminish considerably.

Tibor Machan is a professor of business ethics and Western Civilization at Chapman University in Orange, Calif., and recent author of Neither Left Nor Right: Selected Columns (Hoover Institution Press, 2004). He is a research fellow at the Hoover Institution, Stanford University.